OnLive has been in development for the last seven years and has signed up content partners, including EA, Ubisoft, Take2, Eidos, Atari, Codemasters, Epic and THQ

The subscription service will feature games such as Burnout, Fear 2, Tomb Raider: Underworld and Crysis: Warhead.

We are not doing video encoding in the conventional sense

Steve Perlman, OnLive

Mr Perlman, who led the early developments into video streaming service QuickTime while at Apple, told BBC News: "We have nine of the largest game publishers in world signed up.

"They have spent several years in some cases actually going and reviewing our technology before allowing us to associate with their company names and allowing us to have access to their first-tier franchises."

The service has raised eyebrows in some quarters given the difficulties of encoding High Definition video in near real time at servers in data centres, and streaming it over the open internet to a user.

Delivering real-time streaming game play is seen by some as an insurmountable problem, even before factoring in the necessity of sending back telemetry from a game controller across the net to the data centre.

"We are not doing video encoding in the conventional sense," explained Mr Perlman, dismissing an article in gaming website Eurogamer that said the service was unworkable.

"It's a very ignorant article," said Mr Perlman, who said Eurogamer had conflated issues of frame rate and latency.

"They are independent factors," he said.

OnLive has said it has created a video compression algorithm designed specifically for video games that can encode and compress video into data in about one millisecond.

So far nine big game publishers have signed up to the service

A custom-built silicon chip designed by OnLive does the actual encoding calculations at the server end, as well as the decompression at the gamer end, inside a cheap hardware add-on.

Mr Perlman said it had taken "tens of thousand" of man hours to develop the algorithm.

He said: "First of all it was a postage stamp size screen with no latency over the internet. It looked like the silliest kind of game because the screen size was smaller than a cell phone but nonetheless there was no lag.

"We were running Quake actually - or micro quake as we called it. It was very unimpressive to anyone apart from an engineer."

The algorithm is not perfect. You will sometimes see little artefacts on the screen

Steve Perlman, OnLive

After years spent refining the technology OnLive has said it was able to make the video window bigger and bigger until achieving a resolution of 1280 by 720 at 60 frames per second.

Technologists contacted by BBC News said that that level and speed of video encoding would not be "beyond the bounds of credibility" but would require custom hardware.

The algorithm was developed on dual quad core Xeon processors, which cost thousands of pounds, but OnLive have said they have distilled it down so it can run on a custom chip which costs "under 20 bucks to make".

Mr Perlman said the chip was "high performance for video compression", running at less than 100Mhz clock speed and drawing about two watts of power.

"We can make millions of these things. Because of the economy there is plenty of excess capacity in fabrication plants."

Mr Perlman said OnLive had already ordered a "very large batch".

He said the OnLive experience was almost as good as sitting in front of a console and playing a game.

"The algorithm is not perfect. You will sometimes see little artefacts on the screen. Video compression is part science and part art.

Net imperfections

"Every time you present new material to it, you will see something it does not compress so well. We note those and correct the algorithm."

Mr Perlman said the algorithm had been designed with the imperfections of the internet in mind.

"Rather than fighting against the internet... and dropped, delayed or out of order packets we designed an algorithm that deals with these characteristics.

OnLive said a broadband connection of 5Mbps will be fast enough for high definition gaming, while 1.5Mbps will be sufficient for standard definition.

At those speeds and with a data centre no further than 1,000 miles away for any gamer in the US the inevitable latency of the net as data has to physically travel across the network is within tolerable limits, said Mr Perlman.

The MicroConsole connects the TV to the internet

OnLive currently has two data centres in the US running a beta version of the service. In order to minimise lag across when the commercial service goes live at the end of 2009 the company has said it will need five data centres around the country.

"The round trip latency from pushing a button on a controller and it going up to the server and back down, and you seeing something change on screen should be less than 80 milliseconds.

"We usually see something between 35 and 40 milliseconds."

The games themselves will be running on "off the shelf motherboards" at the data centres.

The company has calculated that each server will be dealing with about 10 different gamers, because of the varying demands games have on hardware.

"Most games run fine on dual core processors. What you really want is a high performance graphics processor unit," said Mr Perlman.

He said that while work continued on refining the algorithm the bulk of the technical work had been completed.

A wider beta test begins this summer and feedback from the testing will be used to refine the service.

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